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CERC Rules In Favor Of Solar Developers For GST Compensation On O&M Projects

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Up an important milestone, the Central Electricity Regulatory Commission (CERC) has finally given in and decided to compensate developers for the GST in seven cases, five of which involve entities owned by Azure Power.

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The principal parties, NTPC Vidyut Vyapar Nigam Limited (NVVN) and SECI, have debated the issue surrounding the handling of GST on O&M (Operations and Maintenance) contracts of solar projects by these developers.

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The petitioners had appealed the CERC’s earlier denial of their claim, and they had turned to APTEL for help. In March of this year, the APTEL bench decided to follow the precedent set by earlier decisions of APTEL where it had chosen to uphold such claims, and it sent the case to the CERC for reconsideration.

Upon reconsideration, the CERC stated clearly that the ruling would only apply to the GST on O&M and not to the petitioners’ subsequent claim of carrying expenses, which CERC viewed as beyond the scope of the ruling.

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Finally, it acknowledged that the power purchase agreement (PPA) gives generators an implicit right to contract out O&M. Compensation must come once it is determined that the imposition of a tax on the services used by a generator affects the price of or revenue from the business of producing and selling energy, whether directly or indirectly.

The “business of selling electricity” is referred to in Article 13 of the PPA, CERC explained The recompense envisioned here cannot be limited to the “generation of electricity” activity.

It further added, the word “business” has a fairly broad definition. According to the definition given in Mitra’s Legal & Commercial Dictionary (Sixth Edition), it is an activity that a person engages in consistently and routinely in order to make a living. 

Thus, the term “business of supply of electricity” will have to be viewed as including the full range of operations related to the generation, distribution, etc. of electricity.

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Therefore, the CERC instructed the parties to settle their differences and resolve their claims.

Additionally, it ordered the respondent DISCOMS—the actual purchaser of electricity—to pay the NTPC/NVVN/SECI all the above-reconciled claims that they owe the Petitioners. 

However, NTPC/NVVN or SECI’s payment to the Petitioners is not dependent on the responding DISCOMS paying them. By doing this, it was only acknowledging the legal validity of the PPA between the principals and the generators and the PSA between the same principals and the DISCOMs.

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